Employee wants Form 1099-MISC instead

[FEDUKE404]

An elderly client for several years has had a person come to her home three days each week. The aide assists her in various health-related issues, performs some housekeeping chores, and runs errands. The aide is paid as as employee (Form W2) using Schedule H with Form 1040. The relevant state taxes, including SUTA, are handled separately. Everything is completely above board and the employer and tax records are excellent.

For whatever reasons the aide soon will no longer be able to work as many hours for the client. A second person, a nurse, has agreed to do the same type work and eventually replace the prior employee. The nurse is insistent that she be paid via Form 1099-MISC and not via Form W2 (she does not wish "taxes"/FICA/etc to be taken out). The client is quite sharp, and is refusing to do so. Client informed me the words she used to explain the tax rules to the nurse, and my comment was "I could not have stated it better myself!"

I'm fully aware there are some circumstances where a Form 1099 might be appropriate, but at least in my opinion this is definitely not one of them. The nurse clearly will be a) regularly working in the client's home and b) performing services at the client's direction.

Am I missing something here? Client agrees with me but also fears she may have trouble getting a suitable replacement if the nurse refuses the job over this issue.

FE

[Bees Knees]

If the nurse is a professional nurse in the business of providing services for a number of clients, she is an independent contractor and should be paid with a 1099-MISC rather than a W-2 and Schedule H.

The difference is I doubt your tax client provided the education for the nurse to be licensed as a nurse. Professionals generally are not household employees. You are not a household employee simply because you choose to go to your tax client’s home to prepare his or her taxes.

On the other hand, if the nurse is not providing services for other clients, and a substantial amount of services provided involve non-nursing services (washing dishes, cleaning, etc.), then the nurse would be a household employee.

You might remind the nurse that if he/she is a household employee, half of FICA is paid by the employer, and he/she has the option not to have federal taxes withheld.

[Jiggers]

No 1099

You do not issue a 1099MISC for household labor.

Even if the person is providing services for other households and is really self-employed.

You either withhold, report on Schedule H and a W-2, or nothing.

[Bees Knees]

You do not issue a 1099MISC for household labor.

Even if the person is providing services for other households and is really self-employed.

You either withhold, report on Schedule H and a W-2, or nothing.

Sorry, I missed that point. I knew that. I haven't had enough coffee yet this morning.

[Jiggers]

Why no W-2?

I encounter this a lot. Most don't want to report the income because of some welfare benefit or they are receiving SS and don't want to lose them.

[OtisMozzetti]

Nurse apparently plans to deduct expenses on Sch C

Could it be that the prospective new person, the nurse, plans to deduct a bunch of actual or imagined expenses on Schedule C, not subject to 2% AGI as those expenses would be for an employee?

[FEDUKE404]

Client should use W2 from what I see

I encounter this a lot. Most don't want to report the income because of some welfare benefit or they are receiving SS and don't want to lose them.

So far as I know, while there may be some "medical" issues the majority of the work falls into the housekeeper/cook/errands category. While the nurse may have other "nursely visits" she can throw onto a Schedule C/Form 1099-MISC, I am convinced this is not one of them.

Re my going to a client's home to prepare taxes: I don't really anticipate a situation where I would routinely do that two or three times a week on a regular basis, and then help out with housekeeping etc.

My guess is the nurse does perhaps want to "hide" some income, or wants to deduct a lot of expenses on Sch C, and really would like somehow to claim travel. And, of course, that EITC curve goes down as well as up.

In any case, I think my client is on solid footing to say "W2 and that's it."

At least I now know I'm not alone in encountering such employee shenanigans! Thanks for everyone's input.

FE

[taxea]

Employee wants Form 1099-M

using the employee vs independent contractor rules..which applies? taxea

[solomon]

From Rev. Rule 87-41

The twenty factors are described below:

1. INSTRUCTIONS. A worker who is required to comply with other persons' instructions about when, where, and how he or she is to work is ordinarily an employee. This control factor is present if the person or persons for whom the services are performed have the RIGHT to require compliance with instructions. See, for example, Rev. Rul. 68-598, 1968-2 C.B. 464, and Rev. Rul. 66-381, 1966-2 C.B. 449.

2. TRAINING. Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the person or persons for whom the services are performed want the services performed in a particular method or manner. See Rev. Rul. 70-630, 1970-2 C.B. 229.

3. INTEGRATION. Integration of the worker's services into the business operations generally shows that the worker is subject to direction and control. When the success or continuation of a business depends to an appreciable degree upon the performance of certain services, the workers who perform those services must necessarily be subject to a certain amount of control by the owner of the business. See United States v. Silk, 331 U.S. 704 (1947), 1947-2 C.B. 167.

4. SERVICES RENDERED PERSONALLY. If the Services must be rendered personally, presumably the person or persons for whom the services are performed are interested in the methods used to accomplish the work as well as in the results. See Rev. Rul. 55-695, 1955-2 C.B. 410.

5. HIRING, SUPERVISING, AND PAYING ASSISTANTS. If the person or persons for whom the services are performed hire, supervise, and pay assistants, that factor generally shows control over the workers on the job. However, if one worker hires, supervises, and pays the other assistants pursuant to a contract under which the worker agrees to provide materials and labor and under which the worker is responsible only for the attainment of a result, this factor indicates an independent contractor status. Compare Rev. Rul. 63-115, 1963-1 C.B. 178, with Rev. Rul. 55-593 1955-2 C.B. 610.

6. CONTINUING RELATIONSHIP. A continuing relationship between the worker and the person or persons for whom the services are performed indicates that an employer-employee relationship exists. A continuing relationship may exist where work is performed at frequently recurring although irregular intervals. See United States v. Silk.

7. SET HOURS OF WORK. The establishment of set hours of work by the person or persons for whom the services are performed is a factor indicating control. See Rev. Rul. 73-591, 1973-2 C.B. 337.

8. FULL TIME REQUIRED. If the worker must devote substantially full time to

the business of the person or persons for whom the services are performed, such person or persons have control over the amount of time the worker spends working and impliedly restrict the worker from doing other gainful work. An independent contractor on the other hand, is free to work when and for whom he or she chooses. See Rev. Rul. 56-694, 1956-2 C.B. 694.

9. DOING WORK ON EMPLOYER'S PREMISES. If the work is performed on the premises of the person or persons for whom the services are performed, that factor suggests control over the worker, especially if the work could be done elsewhere. Rev. Rul. 56-660, 1956-2 C.B. 693. Work done off the premises of the person or persons receiving the services, such as at the office of the worker, indicates some freedom from control. However, this fact by itself does not mean that the worker is not an employee. The importance of this factor depends on the nature of the service involved and the extent to which an employer generally would require that employees perform such services on the employer's premises. Control over the place of work is indicated when the person or persons for whom the services are performed have the right to compel the worker to travel a designated route, to canvass a territory within a certain time, or to work at specific places as required. See Rev. Rul. 56-694.

10. ORDER OR SEQUENCE SET. If a worker must perform services in the order or sequence set by the person or persons for whom the services are performed, that factor shows that the worker is not free to follow the worker's own pattern of work but must follow the established routines and schedules of the person or persons for whom the services are performed. Often, because of the nature of an occupation, the person or persons for whom the services are performed do not set the order of the services or set the order infrequently. It is sufficient to show control, however, if such person or persons retain the right to do so. See Rev. Rul. 56-694.

11. ORAL OR WRITTEN REPORTS. A requirement that the worker submit regular or written reports to the person or persons for whom the services are performed indicates a degree of control. See Rev. Rul. 70-309, 1970-1 C.B. 199, and Rev. Rul. 68-248, 1968-1 C.B. 431.

12. PAYMENT BY HOUR, WEEK, MONTH. Payment by the hour, week, or month generally points to an employer-employee relationship, provided that this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job. Payment made by the job or on § straight commission generally indicates that the worker is an independent contractor. See Rev. Rul. 74-389, 1974-2 C.B. 330.

13. PAYMENT OF BUSINESS AND/OR TRAVELING EXPENSES. If the person or persons for whom the services are performed ordinarily pay the worker's business and/or traveling expenses, the worker is ordinarily an employee. An employer, to be able to control expenses, generally retains the right to regulate and direct the worker's business activities. See Rev. Rul. 55-144, 1955-1 C.B. 483.

14. FURNISHING OF TOOLS AND MATERIALS. The fact that the person or persons for whom the services are performed furnish significant tools, materials, and other equipment tends to show the existence of an employer-employee relationship. See Rev. Rul. 71-524, 1971-2 C.B. 346.

15. SIGNIFICANT INVESTMENT. If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees (such as the maintenance of an office rented at fair value from an unrelated party), that factor tends to indicate that the worker is an independent contractor. On the other hand, lack of investment in facilities indicates dependence on the person or persons for whom the services are performed for such facilities and, accordingly, the existence of an employer- employee relationship. See Rev. Rul. 71-524. Special scrutiny is required with respect to certain types of facilities, such as home offices.

16. REALIZATION OF PROFIT OR LOSS. A worker who can realize a profit or suffer a loss as a result of the worker's services (in addition to the profit or loss ordinarily realized by employees) is generally an independent contractor, but the worker who cannot is an employee. See Rev. Rul. 70-309. For example, if the worker is subject to a real risk of economic loss due to significant investments or a bona fide liability for expenses, such as salary payments to unrelated employees, that factor indicates that the worker is an independent contractor. The risk that a worker will not receive payment for his or her services, however, is common to both independent contractors and employees and thus does not constitute a sufficient economic risK to support treatment as an independent contractor.

17. WORKING FOR MORE THAN ONE FIRM AT A TIME. If a worker performs more than de minimis services for a multiple of unrelated persons or firms at the same time, that factor generally indicates that the worker is an independent contractor. See Rev. Rul. 70-572, 1970-2 C.B. 221. However, a worker who performs services for more than one person may be an employee of each of the persons, especially where such persons are part of the same service arrangement.

18. MAKING SERVICE AVAILABLE TO GENERAL PUBLIC. The fact that a worker makes his or her services available to the general public on a regular and consistent basis indicates an independent contractor relationship. See Rev. Rul. 56-660.

19. RIGHT TO DISCHARGE. The right to discharge a worker is a factor indicating that the worker is an employee and the person possessing the right is an employer. An employer exercises control through the threat of dismissal, which causes the worker to obey the employer's instructions. An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces a result that meets the contract specifications. Rev. Rul. 75-41, 1975-1 C.B. 323.

20. RIGHT TO TERMINATE. If the worker has the right to end his or her relationship with the person for whom the services are performed at any time he or she wishes without incurring liability, that factor indicates an employer- employee relationship.

Specific to nursing, see Rev. Ruling 61-196 - can be found at taxlinks.com

[tpert]

Solomon...thank you for posting these and their source.

[FEDUKE404]

Nice list!

Solomon,

Thanks for the due diligence!

FWIW - To reiterate, the first person was not a nurse, more of a caregiver/housegiver who assisted in some non-professional roles a nurse might provide. The replacement person, who just "happens" to be a nurse, will have essentially the same role.

I think the client is on very solid ground to treat both person one and person two as (household) "employee," although apparently person two is not overly pleased with the idea. As has been mentioned before, there could be several reasons for said dissatisfaction!

FE

[solomon]

Solomon,

Thanks for the due diligence!

FWIW - To reiterate, the first person was not a nurse, more of a caregiver/housegiver who assisted in some non-professional roles a nurse might provide. The replacement person, who just "happens" to be a nurse, will have essentially the same role.

I think the client is on very solid ground to treat both person one and person two as (household) "employee," although apparently person two is not overly pleased with the idea. As has been mentioned before, there could be several reasons for said dissatisfaction!

FE

Agree FEDUKE. Rev. Ruling 61-196 essentially says that it depends upon the nature of the work when performed by a RN or LPN within a home. As you describe it, she would be an employee.